In The News: Private Education

It’s been more than three years since our office released an Oregon look at student loans, defaults and the economy. We are working on updating parts of the report, more in the near future. However the big education news this week is the closing of ITT Tech, following the closure of Corinthian College last year. One item that really stood out, or at least surprised us when we last looked at student loan defaults was that many of these proprietary (career and technical, by and large) did not have extremely high default rates. Yes, they were significantly above default rates from four year universities and even a bit higher than beauty schools, however below the culinary and art schools and community colleges. The graph below is an update using the latest data from the U.S. Department of Education.

Now, just because default rates are not exceptionally high does not mean they are great education bets. The biggest issue here is not only that some rely heavily upon federal student loans for their revenue, but also whether or not students actually complete the degree/training programs and whether or not such degrees/training actually improve labor market outcomes. That is, are these schools actually improving employment rates for their students and are the students earning higher wages after completion then they would have without the program? That is what we care about from an economic perspective. Clearly in some cases the answer is yes, however not always.

In terms of the outlook, this latest news raises an interesting question. IHS and some other macroeconomic forecasters have the outlook that private education employment will decline in the near future. In conversation with IHS their reasoning is due to things like the ITT Tech closure where some of these schools’ underlying business model falls apart. This has been their employment outlook for a number of years now, however with each passing quarter and year where employment does not fall, they simply shift out the decline. This may be the correct long-term view, it’s an interesting and open question. However it also has not been very accurate lately. Our office’s view is that these private sector education jobs will grow more in-line with population growth over time and school- and college-age population. There is more to these jobs than the career and technical institutes, as it includes private K-12 schools, private universities and the like.

Overall private education is a relatively small employment sector in Oregon and nationwide. The big news today is not whether or not these jobs will grow slowly or decline slowly in the future. The potentially big news is making sure that students actually graduate from their training programs and get better jobs than without the programs. That would be the best economic outcome and help with future growth.

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Responses

Josh:

I think your conclusion is spot on. Instead of focusing on defaults, a better measure of success might be the “return on investment” (i.e., employment and incomes produced by these loans). What surprised me was the default rate for community colleges, which has not received nearly the attention that for-profit schools have received. This suggests that there may be a bigger problem in the CC educational system than in the for-profit world. I’d love to see you do a follow up article that would give a better apples-for-apples comparison of cost v. benefit for these two educational systems.

Community Colleges play a vital role in the education system, however they have significantly higher default rates. In the previous work we devoted a good chunk of the write-up to the issue.https://oregoneconomicanalysis.com/2013/03/14/education-and-student-debt/
One thing we found was a positive relationship between high default rates by individual community colleges and the local/county unemployment rate. CC generally do not get as many out-of-state students, they serve the local population. So even those who do graduate, if the local job market is bad, then employment and repayment rates may likewise be bad. Given the state’s 40-40-20 goals, there is no question CC need to play an even bigger role.

As for cost-benefit analysis, that’d be great! In the data, which I will do a better job of showing in the near future, every single year of education matters. Those with 1 year of CC have higher wages than HS graduates. Those with 3 years of college earn more too. So it’s not just a degree/no degree distinction, although those do matter. That then gets to the question some economists like to ask, is it really about the education or is about signalling you are a good, smart, hard-working person who can put in the time and effort to obtain a degree. It’s some of both, but opinions vary on how much each matters more.